Oil Price Crash: Nigeria To Save N1 Trillion — FG

The Federal Government, yesterday, stated that the low price of crude oil had presented an opportunity for Nigeria to save up to $5 billion, about N1 trillion as it would no longer have to pay for subsidy for Premium Motor Spirit, PMS, also known as petrol.

The Federal Government, yesterday, stated that the low price of crude
oil had presented an opportunity for Nigeria to save up to $5 billion,
about N1 trillion as it would no longer have to pay for subsidy for
Premium Motor Spirit, PMS, also known as petrol.

Vice President Yemi Osinbajo, who was speaking in a panel discussion at
the World Economic Forum in Davos, Switzerland, however, stated that
Nigeria is in dire straits on how to finance the deficit in the 2016
budget.

He said, “Lower oil prices also mean there is some advantage. The
decline means that we are not paying any subsidies, which frees up
something in the order of about $5 billion.”

He added that Nigeria would still face challenges in financing its
budget deficit and aims to increase value-added tax and customs duty
collection to help plug the gap.

“We think with adequate governance around budget management and around
expenditure management, we can do quite a bit. If we are able to do
those things, we might be able to come away with under $30 per barrel
oil,” Osinbajo noted.

However, despite the gains to the country, the low price of crude oil
and lack of policy direction in Nigeria, has continued to take its toll
on companies in Nigeria, as Shoreline Group, an operator in the Nigerian
energy sector, yesterday, said it would sack 700 of its staff, while it
also suspended its planned $500 million Eurobond.

He said, “We went on a roadshow and the world of oil collapsed. We are
going to wait until end of first quarter and see how stable markets are.
Mid-last year, our projections were $60-dollar oil for the next five
years.”

Karim said Shoreline would switch its focus to gas production and
distribution within Lagos, especially as it costs the company more than
$20 to produce a barrel of oil.

He further explained that with a government-mandated price of $3.69 per
standard cubic foot of gas to encourage local producers to sell to
Nigerian consumers such as power plants, Shoreline is in talks with the
African Finance Corporation, African Development Bank and African
Export-Import Bank to get them to lend $500 million to finance the
projects, which include 125 kilometers, about 78 miles of pipeline.

“That is a local business that is tied to dollars, but is not
fluctuating. More importantly, there is no downside to it because the
country needs gas to energize its growth’ so that is a secure business.”

Meanwhile, succour came the way of Nigeria in terms of crude oil sales,
yesterday, as Indian Oil Corporation (IOC) doubled its crude oil
purchases from Nigeria, from 1.7 million tons per annum to three million
tons in 2016 on a term or fixed contract.

The purchases, which is partly aimed at diversifying IOC’s sources of
supplies, is coming on the heels of the term contracts the Nigerian
National Petroleum Corporation, NNPC, signed with some companies for
991,000 barrels per day of Nigeria’s crude oil.

To this end, IOC is the only Asian companies to have been offered a term
contract by Nigeria, following the overhaul of the crude oil contracts,
where the NNPC prefer to sell directly to international refineries,
trading houses and local downstream firms.

IOC was among the firms chosen for the contract alongside refiners like
Spain’s Cepsa, Italy’s Saras, and ENOC of the United Arab Emirates. On
the list were also trading houses Trafigura, Mercuria and Vitol and
international oil companies ENI, Total, Exxon and Shell.

China’s Sinopec and its trading arm Unipec, which are large buyer of Nigerian oil, do not figure in the list.
Prior to the agreement, IOC, India’s largest refinery, buys some eight
million tons a year of crude oil from Nigeria; most of which is bought
from spot or current markets where prices are subject to extreme
volatilities.

A term contract offers not just assured supplies but also cheaper price
as the rate is based on official selling price of exporting country.

IOC Chairman, Mr. Shri Ashok said Nigeria chose the companies from their
track records and trading experience to ensure that its crude cargoes
are not left unsold.

Ashok said crude purchases are based on techno-commercial viability. “A
crude has to be commercially viable for me to buy and also technically
feasible for our refineries to process,” he stated.

Nigeria is India’s third biggest oil supplier, selling 11.59 million
tons in first half of current fiscal. It was behind only Saudi Arabia
(19.56 million tons) and Iraq (17.01 million tons) in terms of supplies.

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